SFB 303 Discussion Paper No. A - 283
Author: Dutta, Jayasri, and Heraklis Polemarchakis
Title: Investment and the Aggregation of Risks
Abstract: A competitive equilibrium may preserve, even magnify,
firm-specific risks in the aggregate. This is the case if
firms can anticipate their productivites when they make
investment decisions or, alternatively, if capital can be
reallocated once the productivites of firms are realized. In
a large economy, output is serially correlated and the real
rate of interest varies countercyclically. On the contrary,
in a large economy without anticipation or shiftable
investment, a competitive equilibrium is essentially
riskless.
Keywords:
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Creation-Date: March 1990
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